5. Need for Updated NEM Cost-Effectiveness Data
and Temporary Pause in the NEM Program
Effective January 1, 2015

An overarching issue with respect to the NEM program, quite apart from the instant controversy over calculation of the cap on the quantity of resources the utilities are obligated to take, is the level of cross-subsidization of NEM customers by other customers on the utility systems, a concern expressed by the utilities and DRA in their comments. As noted in the joint reply comments of SEIA, CALSEIA, and Constellation New Energy, a 2010 Commission report to the Legislature on the cost-effectiveness of NEM estimated that the total net cost of NEM once the CSI Megawatt goals were reached would equal $137 million (2008 dollars) per year.¹⁰ However, that report included sensitivity analyses of some parameter values, such as interconnection and standby service costs, that were not incorporated in the main analysis. If accurate, the excluded costs would substantially raise the net cost of NEM. The Commission is concerned about the lack of empirical information regarding the extent and nature of this cross-subsidization, and how complex aspects of rate-setting for the various rate tiers in the residential class compound or otherwise affect these cross-subsidies.

For these reasons, the Commission in this decision will order an updated, comprehensive study of the NEM program, to commence immediately. The goal of the study will be to provide the Commission and all interested parties, including the Legislature, with a better understanding of who benefits, and who bears the economic burden, if any, of the NEM program. The report should quantify the costs and benefits of NEM to participants and non-participants and should further disaggregate the results by utility, customer class, and household income groups within the residential class. The study should also seek to gather and present data on the income distribution of residential NEM participants. In order to assess the costs and benefits at various levels of NEM implementation, the above analyses should be conducted using multiple NEM penetration scenarios, including at minimum, the capacity needed to reach the solar photovoltaic (PV) goals of the CSI and the estimated NEM capacity under the five percent cap as defined in this decision. The results of such a study then can be used by the Commission to set future policy for the NEM program, with full awareness of the economic impacts of any policy choices on all classes of ratepayers. This study should be completed no later than October 1, 2013.

Further, to ensure that our policy appropriately reflects what we learn from this study, we hereby put all parties on notice that the Commission will suspend the NEM program for new customer-generators at the end of calendar year 2014, pending the outcome of further Commission proceedings to be undertaken in the wake of the study. Existing customers receiving service under NEM tariffs prior to January 1, 2015 will not be affected by this suspension. We anticipate this temporary suspension in the NEM program, effective January 1, 2015, will remain in place pending the issuance of new rules at the conclusion of a rulemaking proceeding we will commence once the study described above is completed. Of course, if the study can be completed and the new rules are issued prior to December 31, 2014, then the suspension of the program in 2015 will not be necessary. But if the post-study rulemaking remains open and incomplete on January 1, 2015, then under the terms of today's decision the program will be suspended thereafter, and the utilities will not accept any new NEM applications, until the new rules are issued and take effect.

The purpose of the new rulemaking proceeding will be to reassess the NEM program in light of the study results. In the policy-setting phase, we intend to explore the costs of NEM, and alternative mechanisms for compensating customer-sited renewable generation. The updated NEM study will inform our consideration of the most cost-effective path forward to achieve the state's renewable energy distributed generation goals.

In order to ensure that each utility achieves its CSI solar PV targets, the suspension of the NEM obligation should not apply to any utility if the CSI target has not been met. Any utility that has not yet reached it CSI target should continue to offer full-retail NEM to renewable customer-sited generation until its CSI solar PV target has been reached.

¹⁰ Joint reply comments of SEIA, CALSEIA, and Constellation New Energy, 5/7/12 at 4.